As winter approaches, the European automotive manufacturing industry is facing an unprecedented storm.
Europe's two automotive giants-Volkswagen and Stellantis-are entering a difficult period of "grinding down" amid multiple pressures such as market decline, the transition to electric vehicles, and increasing competition. Volkswagen is dealing with employee strikes over its cost-cutting plan, which includes closing three factories in Germany, laying off tens of thousands of workers, and implementing a 10% salary reduction for all employees. Stellantis is struggling both internally and externally, having lost major markets, experienced a shrinkage in market share, undergone a shake-up in its executive team, and seen its CEO step down.
As Europe's leading automakers "brace for winter," automotive parts suppliers are also feeling the chill, with tens of thousands of layoffs planned and factories set to be closed or sold.
European Automotive Tier 1 Faces a Wave of Layoffs
Robert Bosch, the world's largest automotive parts supplier, has announced plans to lay off over 12,000 employees globally, with 10,800 of those layoffs occurring in Germany alone.
ZF, the world's second-largest supplier, plans to cut between 11,000 and 14,000 jobs globally by 2028.
Continental, ranked eighth globally, will lay off 7,150 employees worldwide, including approximately 3,000 in Europe.
Freyr, the ninth-ranked supplier globally, has stated that by 2028, it will lay off over 10,000 employees in Europe, accounting for 13% of its total workforce.
Valeo, the eleventh-largest automotive parts supplier, plans to lay off more than 2,000 employees, with at least half based in France. Additionally, the company will close several small factories.
Mahle, ranked 22nd, will reduce its workforce by 600 in Slovenia. Schaeffler, ranked 27th, will lay off 4,700 employees in Europe and close factories in the UK and Austria.
Overall, the largest European Tier 1 automotive suppliers have announced global layoffs of over 50,000 this year, including at least 20,000 in Germany and over 10,000 in other parts of Europe. According to lobbying group CLEPA, since 2020, including layoffs during the COVID-19 pandemic, European automotive parts suppliers have cut 86,000 jobs.
CLEPA Secretary-General Benjamin Krieger stated that even when considering new jobs created in emerging automotive sectors, the number of lost positions remains significant. "Despite forecasts indicating that the automotive industry will add over 100,000 jobs by 2025, the reality shows a net decrease of nearly 56,000 positions."
Benjamin Krieger pointed out that in the first half of this year, European suppliers announced plans to cut 32,000 jobs, a figure exceeding the scale of layoffs during the pandemic's peak.
Germany, as the core strength and largest economy of the European automotive industry, has been particularly hard hit by layoffs and factory closures.
In November, Bosch announced its latest round of layoffs, planning to cut 5,500 jobs in its software, electronics, and steering systems departments, with more than half of the layoffs occurring in Germany. Bosch stated that demand for advanced driver assistance systems, autonomous driving systems, and centralized vehicle architecture control units has been lower than expected, affecting production and orders from automakers.
In an interview with Automobilwoche, Bosch CEO Stefan Hartung defended the company's layoffs, citing "massive" cost pressures. He said, "We need to further adjust the company's structure and reduce positions globally. We must become more competitive and flexible."
If the giants are already facing such challenges, smaller automotive parts suppliers are in an even more precarious situation. German authorities have reported that in the first half of this year, 20 German automotive parts suppliers with annual revenues exceeding €10 million went bankrupt, a year-on-year increase of 60%.
Slow Growth of Electric Vehicles Leads to Layoffs
Data released by the European Automobile Manufacturers Association (ACEA) shows that in the first three quarters of this year, new car registrations in the EU were flat compared to last year, with a 6.1% year-on-year decline in September. Among these, electric vehicle registrations fell by 5.8%, with the total market share decreasing from 14% to 13.1%.
CLEPA President and Schaeffler Automotive Technology Head Matthias Zink stated, "The main issue our industry faces is the slow pace of electric vehicle development. The greatest impact on employment may still be to come. In the coming years, the employment prospects for automotive parts suppliers are not promising."
Pedro Pacheco, an analyst at the American consulting firm Gartner, noted that suppliers are under multiple pressures during the automotive industry's transformation. The rise of electrification, autonomous driving, and software-centric vehicles requires fundamental strategic shifts for companies.
However, he also pointed out that if suppliers take measures to transform but the pace of transformation is slower than expected, companies will face risks. This means that initial R&D investments cannot be quickly converted into economic returns, and in some cases, suppliers may suffer losses from reduced or delayed orders.
"Layoffs among Tier 1 suppliers are typically concentrated in two key areas: electrification and software," Pedro Pacheco said. "These are the new technology areas that automakers have committed to investing in, but progress has been slower than expected, and this is now directly affecting suppliers."
This trend is also evident in the financial reports of international parts companies. Veoneer, in its third-quarter financial report, stated that the slowdown in the global transition to electric vehicles has introduced uncertainty into automotive production, leading to a decrease in net profit compared to the same period last year.
Dena also reported that due to shrinking market demand for electric vehicles, it expects the sales growth of its electric vehicle products business to decrease by approximately $35 million compared to last year.
The slowdown in electric vehicle demand introduces uncertainty into automakers' strategies, which also affects parts suppliers. Pedro Pacheco noted that large parts suppliers need to carefully select their automotive clients. "If they are not careful, they might be dragged down by automakers that are underperforming in electrification and software."
On October 31, BorgWarner downgraded its full-year 2024 sales forecasts after its customer Ford announced a weak outlook, and another major customer, Volkswagen, saw its third-quarter profits drop to a three-year low and demanded a 10% salary reduction from employees. In 2023, Volkswagen and Ford accounted for approximately 25% of BorgWarner's sales. Now, with these two automakers struggling, BorgWarner's performance outlook is naturally affected.
International Automakers' Struggles in China Impact Suppliers
As competition in the Chinese market intensifies, international automakers are facing challenges such as slowing sales growth, shrinking market share, and reduced profit margins. These issues not only put pressure on the automakers themselves but also directly affect their upstream and downstream supply chains, especially Tier 1 suppliers.
Taking Volkswagen Group's difficulties in China as an example, the Chinese market, which is Volkswagen's largest single market globally, once accounted for up to 40% of its global sales. However, with Chinese domestic automakers like BYD rapidly expanding their market share, Volkswagen's market share in China has now fallen below 20%.
The decline in Volkswagen's sales and market share naturally leads to reduced orders for parts, directly impacting the supply chain and creating a domino effect for parts suppliers like Bosch and Schaeffler.
Pedro Pacheco stated, "Because Chinese automotive brands can offer more advanced electric vehicles and software solutions, German automakers are struggling in China. As they lose market share, their suppliers inevitably suffer."
While automakers facing declining demand can maintain profits by selling fewer cars at higher prices, this means reduced demand for suppliers' parts-which, in some cases, leads to temporary or permanent layoffs.
"Suppliers' parts sales have already decreased and are now further hit by revised down sales forecasts for electric vehicles and software systems," Pedro Pacheco said. "The Chinese market fully demonstrates the impact of electrification and software advancements, and European automotive brands are lagging in this area, causing a ripple effect on their suppliers."
Valeo CEO Christophe Perillat has issued a stern warning to European leaders about the competitive threats from China, calling for action to protect jobs, maintain supply chains, and ensure technological capabilities. "If we do nothing, more automotive parts will be shipped directly from China to Europe in the future, which poses a significant risk."
To survive in the increasingly fierce market competition, European Tier 1 parts suppliers must adopt more flexible and diversified strategies. This includes collaborating with more non-traditional customers to reduce the negative impact of declining sales from one or a few automakers. Additionally, given China's advancements in new energy and intelligent vehicles, partnering with emerging Chinese companies will present new growth opportunities.
